Endemol reaches compromise with lenders

Agreement excludes future gains from covenant calculations

LONDON -- Endemol has reached a compromise agreement with its lenders over the practice of debt buybacks, which will allow it to continue to include the profit from buybacks as part of its operating profit, but will exclude any future gains from its covenant calculations.

The move comes after a group of lenders representing around 20% of the private equity-backed reality producer's senior debt threatened legal action over the practice of booking the profit from debt buybacks as operating profit, arguing that it amounted to financial engineering that masked the company's operating performance.

Endemol is thought to be highly geared following the 2007 $2.2 billion acquisition by a group of investors including Goldman Sachs, Mediaset and Cyrte Investments.

The company maintained that the procedure was in line with its legal advice and insisted that it was not in breach of its covenants with or without the gains from the debt buybacks, but has said it will not include future profits in its covenant calculations after 2009.

"The agreement confirms that gains achieved by the company from acquiring its own debt at a discount during the summer of 2009 should be included in Endemol's covenant calculations," the producer of "Big Brother," and "Wipeout" said Wednesday.

"Future transactions will continue to be included as operating profits in Endemol's accounts, in line with its (IFRS) accounting policy, but will not be included in covenant calculations," the company added, saying the agreement had been required because of "the lack of clarity" of the loan documents.
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